Harsha Engineers IPO: What makes the company interesting?

Harsha Engineers International was incorporated on December 11, 2010. It is a leading engineering company that offers a diversified suite of products across geographies and end-use industries. Company is the largest manufacturer of precision bearing cages in the organised sector in India, in terms of revenue, and amongst the leading manufacturers of precision bearing cages in the world.

The company offers a diversified suite of precision engineering products across geographies and end-user industries. It has approximately 50% market share in the organised segment of the Indian bearing cages market and around 5.2% market share in the global organised bearing cages market for brass, steel and polyamide cages.

The company offers a wide range of bearing cages starting from 20 mm to 2,000 mm in diameter. These bearing cages find application in the automotive sector, railways, aviation & aerospace, construction, mining, agriculture sector, electrical and electronics and renewables sectors.

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Global Overview

The global bearing cage market has the presence of global and regional players. Some of the key players operating in the global bearing cages market are Nakanishi Metal Works Co Ltd (NKC; Japan), Harsha Engineers International Ltd (HEIL, India), MPT Präzisionsteile GmbH Mittweida (MPT Group Gmbh, Germany) and Manu Yantralaya Pvt Ltd (MYPT, India).

The global bearing market was valued at US$85.2 billion in 2015 and grew to US$106.1 billion in 2019, growing at 5.6% CAGR. Owing to the global outbreak of Covid-19 since end March 2020, the bearing market contracted in 2020 due to a decline in demand and supply chain constraints on account of Covid-19 induced restrictions.

Global bearings market expected to grow at 6.4% CAGR over FY22

However, a rebound was seen in 2021 and the market grew at an annual rate of 12% to US$104.6 billion in 2021. The Asia-Pacific region continued to grow rapidly during the year. The expected growth in usage of bearings in several applications such as mining, automotive, heavy machinery, infrastructure development, power generation and construction is forecast to drive demand in the bearings market and is expected to grow at a CAGR of 6% to 8% over the period 2021 to 2029 and is estimated to be valued at US$171.7 billion in the year 2029.

READ MORE: Harsha Engineers' IPO fully subscribed on Day 1

Segmental Breakup

The company operates in two business segments namely,

(i) Engineering Business

(ii) Solar EPC Business

Engineering Business

Under this business segment, the company manufactures bearing cages (in brass, steel, and polyamide materials), complex and specialised precision stamped components, welded assemblies and brass castings and cages & bronze bushings.

Company has 4 strategically located manufacturing facilities for its engineering business with one of its principal manufacturing facilities at Changodar and one at Moraiya, near Ahmedabad in Gujarat in India, and one manufacturing unit each at Changshu, China, and Ghimbav Brașov în România.

Company has presence in these strategic locations helps the company to penetrate global markets more efficiently and in a cost-effective manner. The company has been successful in diversifying its product portfolio and improving its current processes in different types of bearing cages mainly due to its design, development, and technological capabilities.

Solar EPC Business

Under this business segment, the company provides complete and comprehensive turnkey solutions to all solar photovoltaic requirements. The company is an EPC service provider in the solar photovoltaic industry and provides operations and maintenance services in the solar sector.

The company has over 10 years of operating history in the solar EPC business. The company has an in-house design, engineering, procurement, project management and O&M team which has a combined experience of installing at least 500 MW and more than 60 MW commissioning experience in roof top segment as of March 31, 2022.

Key Risks

• Concentrated number of customers and suppliers
• Third party reliability for supply of raw material, product delivery
• Challenge to diversify the product profile

What makes the company interesting?

Since its incorporation, it has manufactured more than 7,500 types of products in the automotive and industrial segments. It manufactures bearing cages in brass, steel, and polyamide, which represents 6.5% of the global organised outsourced bearing (brass, steel & polyamide) cages market in CY21.

In India, the company commands 50-60% market share in the organised market. The company has recently expanded its product portfolio to introduce sand-casting value-added stamping components, bronze bushings, etc, to cater to more end user industries such as wind, mining, and shipping sectors. Its products find application across automotive, aviation and aerospace, construction, mining, agriculture, electricals and electronics, renewables sectors.

The company has established a strong relationship with its customers who are leading global bearing manufacturers in the automotive, railways, aviation & aerospace, construction, mining, agriculture, electrical and electronics, renewables sectors.

The average age of its relationship with its Top-5 customer groups spans more than a decade. Its key customer groups are also key global bearing manufacturers (Timken, SKF, Schaeffler, JTEKT, etc) that have been among its customers for over a decade. Its customer-centric approach and continuous efforts on transparent dealings has allowed it to enter into long term framework agreements with leading key global bearing manufacturers.

The company’s multiple geographical presence in locations like India, Romania and China helps it to overcome significant entry barriers in comparison to its competitors, allowing it to penetrate these markets more efficiently and become a local supplier to leading key global bearing players.

Additionally, the company has entered arrangements to stock inventory in warehouses over 20 locations across the world. Its multinational presence has also allowed it to diversify its revenues geographically and enhanced the company’s reputation, which results in higher orders from India.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment relatedinvestment-related decision.